Appetite comes with eating, but market confidence can evaporate the moment investors look around. The US equity rebound after the holiday showed AI trade still attracts interest: Intel and Micron were among the leaders, and attention is fixed on Samsung's results and SK Hynix's planned $29bn US IPO, one of the largest listings in history.

Beneath the surface, however, a change of guard is underway. The Philadelphia Semiconductor Index is off nearly 14% from June highs, albeit still about 123% above September levels. Morgan Stanley argues that the chipmakers' momentum is fading as investors reallocate into hyperscalers such as Microsoft, Amazon, and Meta Platforms, names whose appeal rests on resilient core businesses. The bank believes that indices will struggle to make new highs while the market exits the year's largest winning trades.

Chip and hyperscaler index dynamics

That rotation is occurring into a generally soft market. Hedge funds have been net sellers of global equities for the third week running, according to Goldman Sachs. Information technology is bearing the brunt of losses, extending a retreat after the fastest ten-year unwind of speculative positions in the sector. The S&P 500 has pulled back from its early-June peak.

UBS expects investors to demand confirmation that AI-infrastructure capex remains on track: any signs of corporate caution will hit valuations, funding needs and re-expose the market's concentration risk.

The core question is not simply whether current multiples are high relative to history, but whether companies' future profits can justify today's optimism.

Monetary policy adds to the nervousness. Fed Governor Christopher Waller said risks have flipped: inflation now worries the central bank more than the labor market. Investors are eagerly awaiting the minutes from June's FOMC under new Fed Chair Kevin Warsh, though analysts caution against expecting surprises in tone. Warsh, who insists the Fed should talk less and act more, limited the accompanying statement to just 132 words.

Is this a bubble? More likely, the market has simply forgotten how to live without AI and is looking for reasons to convince itself that today's shortage guarantees tomorrow's abundance.

Technically, the daily chart shows that the S&P 500 has consolidated above fair value at 7,500, which allowed a return to buying. Hitting a new local high at 7,555 would be a trigger to add long positions. Initial upside targets are 7,700 and 7,840.